If you are using a SEPP plan and have a Medical Emergency Need
L1: If you are using a SEPP plan and have a Medical Emergency NeedI currently am using the 72t plan and have had a distribution for two years. I am 57 years old birth May 57. First dist. was 2/1/2012. If you encounter a major medical healthcare issue and need funds for a surgery, can you withdraw the funds free of the 10% penalty or will the “clawback” effect take place and the 10%penalty apply on the past two years of 72T assistance? Would it also be considered standard “income”?2014-01-16 00:44, By: 72t and Medical Expense, IP: [184.108.40.206]
L2: If you are using a SEPP plan and have a Medical Emergency NeedIn the past, any distribution that exceeded your SEPP calculation would bust the plan, however it is possible that the IRS would not levy the penalty in this case pursuant to the Benz vrs IRS ruling. These is an analysis of this ruling in the “Articles” tab above. While you cannot necessarily depend on a different ruling for your own situation, your added distribution if limited to no more than your deductible medical expense falls under the same “stand alone” typeof exception as did the higher education expense in the Benz case.
If you are therefore forced into taking this distribution, you could try to claim both the medical and the SEPP exception on your Form 5329 and I would include an explanation. Should the IRS disagree and your plan is busted, you would owe the retroactive penalty plus interest, but you could amend your prior returns for open years to claim your other exceptions rather than the SEPP exception and this would include your medical and any other non SEPP exceptions. That would limit your penalty to only the dollars distributed that were not covered by these other exceptions.
With respect to the income tax, all distributions of pre tax dollars are included in your AGI, but you may be able to offset some of this income by itemizing including your medical expenses. That said, medical deductions are now subject to a 10% of AGI floor due to a provision in the Obamacare legislation.
2014-01-16 17:02, By: Alan S, IP: [220.127.116.11]